Ethiopia’s economic growth, challenges, globalization in the eyes of Stiglitz

Professor Joseph E. Stiglitz
The Ethiopia’s economy has been doing well over the last few years is not that disputable. In fact, it has got recognition both from the World Bank and the International Monetary Fund.Recognized around the world as a leading economic educator, Professor Joseph E. Stiglitz on Monday also seemed impressed by Ethiopia’s economic growth, although he was as well concerned on the challenges ahead to keep that growth sustainable for a longer period.
Invited by the Ethiopian Economic Association and the Ethiopian Development Research Institute to give a lecture on growth and globalization at the headquarters of Economic Commission for Africa, Stiglitz says, “It has been impressive to see Ethiopia’s growth being sustained for the last four years by some ten percent.”
According to him, most of the rest of the East African countries and other developing nations have also been doing well.
What, however, struck Stiglitz about Ethiopia’s growth seemed the source of it. “Some of the growth these developing countries registered over the last several years is a result of increase in commodity prices, particularly in the case of China. The success in Ethiopia is clearly far more than that. It has got to do with an increase in production output, diversification, and going into new areas,” says the professor.
According to Stiglitz, the main challenge will be keeping that growth for a longer period. “The question everybody is asking is how to make that growth sustainable and how to ensure that the benefit of that growth is widely shared.”
The Professor says that Ethiopia was lucky given its recent history and the difficulties it had come through. “At least, Ethiopia has one of the most egalitarian distributions of income in the world,” he says.
In contrast, in much of the developing world, not only are there high levels of inequality, but also the level of the inequality has been increasing very dramatically, according to the professor. Even in China, which has been very successful in reducing poverty, the level of inequality has reached alarming point, he says.
According to the professor, this increase in inequality both within and between countries is providing a real challenge for anybody concerned with egalitarian growth. And the notion that as long as there is growth everybody benefits in what is termed as a “trickle-down economy,” has, in fact, proved wrong, says the world-renowned economist. “There was no good economic theory behind a trickle-down economy and the evidence that support it.”
“The US current GDP is 20 percent higher than it was in 2000 and yet most Americans are poorer than they were six years ago. The number of people living in poverty in the US has increased. All that growth has gone to the people at the very top and the growth registered was pro-rich,” Stiglitz says. “This phenomenon is worrisome and is happening in many parts of the world.” Globalization is partly a cause of this, according to the professor.
While the debate in Ethiopia and in Africa is part of the broader argument on developmental strategy that has been going on for a long time, Stiglitz suggests a number of ways and means that Ethiopia and other African countries could do in order to help keep up their growth.
One important aspect that Stiglitz suggests is an effective role of the state in the developmental processes of African countries. “Market failure is one area where governments can play an important role,” he says. Although there is governance problem, “no country has been successful without having an important role from the government.” At one time or another, the government has played an important role in the US as well as Europe, according to stiglitz.
The professor also notes that developing countries should identify and focus at their comparative advantages in global economy.
Stiglitz suggests that access to finance is another area developing countries should consider. “Access to finance is essential for the long-term growth of especially small and medium enterprises, while these businesses are the source for more jobs.”
The professor also indicates how knowledge would help the growth of developing countries.
Commenting on globalization, the professor would not deny that Africa was at disadvantage. “Many people had said that Africa had benefited from globalization probably because it has been least integrated into the global economy,” Stiglitz says. “That may not be an accurate description because Africa has, sometimes alarmingly, been affected in many ways by what has been going in the world economy.” According to the professor, the global rules of trade are unfair to the poorest countries. “Not only are the US and Europe the major beneficiaries of globalization, but the benefits they gain come also from the expense of the poor countries of the world.”
While globalization has its ups and downs in the countries’ economy, the concern growing with it is growing inequality within and between countries.
“If you see a world in which water flows uphill, you would say something is very weird about that world. Money should be flowing from the rich to the poor. But within this anti-gravity financial market, money has been flowing from the poor to the rich,” Stiglitz says. According to him, some USD 500 billion last year went from poor countries to rich nations.
The good news is, says Stiglitz, that there was a growing recognition of many of these problems. “We can shape globalization to work. There are ways that could make globalization work for both the developed and developing countries.”
“It is a time of change in Ethiopia and in Africa,” the professor says. Given the growth that has been experienced, the challenge will be how to make that sustainable, according to Stiglitz. “I think there are some real opportunities with globalization, particularly if we can shape the way it is working now.”